For a third week, the total amount of commercial paper outstanding plunged, falling a record $94.9 billion in the week ended October 1st to $1.607 trillion, bringing the cumulative drop for the three weeks to $208 billion.
The declines reflect the seizing up of the credit market and withdrawals of monies from money market funds, which held $700 billion of commercial paper at the end of the second quarter. These declines in some ways carry more weight than those of a year ago, when the market was purging issuers with mortgage-related exposures.
This time the purge is broad and is impacting issuers with far more predictable cash flows--regular run-of-the-mill companies in need of working capital. For example, the asset-backed sector saw a $29.1 billion decline in the latest week, news that fits with the poor level of car sales, which are falling under the weight of the lack of availability of credit. The declines add to the urgency for fixes to the credit crisis and bolster the case for a Fed rate cut, which is sorely on many fronts. (Crescenzi discusses bond activity with James Bianco in the video).